I was just catching up with Thursday Night's Question Time and was taken aback when she made the following statement (about 31 mins in);
"Over the last 10 years the Scottish Budget has been cut by 8.5%; in contrast, this report predicts that if we had been an independent country our spending could have increased by 5% over those 10 years. Minus 8 to plus 5."Now.
I've spent a fair amount of time with the numbers in the Growth Commission report and I didn't recognise the figures she quoted at all. I went back and had another look, I searched (based on the quoted figures and likely phrases) but with no joy. I asked around - an opposition MSP friend said he'd heard SNP members making similar assertions in the Chamber during FMQs. I was curious.
To her great credit, Kate DM'd me just as I'd finished this piece (late on a Friday night) and offered me her brief explanation which I'll *reveal* as we go - so do stay awake.
In her quote she rhetorically compares actual figures for the "Scottish Budget" to what sounded like some weird predicted-historical figure for "our spending".
I don't want to disappear down a rabbit-hole of different Scottish Budget line definitions (have a burrow here if you're really interested) - but instead I'll focus just on total Scottish Spending, as that's what matters and it's what the Growth Commission focus on. [first reveal: I now know that this was indeed the figure Kate was referring to for her "plus 5"].
The Growth Commission rightly uses GERS as its main source and so should we.
The Growth Commission states:
"real increases in public spending should be limited to sufficiently less than GDP growth over the business cycle to reduce the deficit to below 3% within 5 to 10 years" [3.187]Given how big our notional deficit was in these last 10 years (peaking at 10.0%) I think we can safely assume that the report would "predict" - if it did, which it didn't, but if it did it would - spending growth slower than GDP growth.
So let's look at the Scottish figures for the last 10 years (2016/17 vs 2006/07)
- Real GDP Growth (inc N Sea): -1.9%
- Real GDP Growth (onshore only): +8.0% (or +0.8% pa)
Clearly the Growth Commission is focusing on the onshore economy, so applying their rule would suggest that we "could have" increased our total spending by something "sufficiently less than" 0.8% pa.
The Growth Commission suggest spending growth at 1.0% pa less than GDP growth [see their Fig 12-2 and point B12.18] and illustrate (correctly) that this would reduce a 5.9% deficit to a 2.9% deficit over 9 years.
Note that in 2009/10 our deficit was in fact 10.0%, so at that point one would argue we'd have needed a far more aggressive rule, but we'll let that pass.
If we applied the "1% less than GDP growth" rule over the last 10 years, then we would have needed to see an average annual real decline in spending of 0.2% pa - or a decline over 10 years of 2%.
What we actually saw - per GERS - was a real spending increase over those 10 years of 10.1% (an average increase of +1.0% pa).
So in Kate's terms: applying the Growth Commission's "prediction" to the last 10 years would see what was actually a 10.1% increase in spending become a 2.3% decrease. Plus 10 to minus 2.
Kate claimed "minus 8 to plus 5" - following the logic above, a fairer statement would have been "plus 10 to minus 2" - almost the complete reverse.
So what's going on here?
Two things;
1. Kate is not comparing like with like. The Scottish budget is a subset of total Scottish spending - the Growth Commission rightly focuses on total Scottish spending, so should Kate when she talks of what could have happenend and so should we. [I also suspect her -8.5% figure includes budget forecast out to 2019/20 rather than purely historic data, but I honestly can't be bothered to check]. Basically the "minus 8" is boohickey.
2. [second reveal] Kate has been good enough to tell me that she arrived at her +5.0% "based on what the GC recommends in terms of increased public spending in Scotland over a 10 year period (by 0.5% per year)"
I'm incredulous.
She's compared a non-comparable subset of our historical public spending over a period during which average onshore GDP growth was actually 0.8% pa with a projection that assumes real GDP growth of 1.5% pa!
The very simple point which Kate (a Commission member, remember) has apparently misunderstood is that the figure of 0.5% pa is most definitely not the GC's spending growth recommendation - it's an illustration of how you could get the deficit down to 3% within 10 years if real GDP growth was 1.5% pa.
But over the last 10 years real GDP Growth wasn't 1.5% pa, it was 0.8% pa - so to have got the deficit down at the rate the Growth Commission recommends, we'd have had to reduce public spending in real terms by 2% over those 10 years.
In fact - due to pooling and sharing within the UK, due to not having to focus on getting Scotland's deficit rapidly down to 3% - we were able to increase our public spending by 10% over that period.
The precise opposite of what Kate claimed is true.
Read the quote again:
She implies that the report's recommendations - if applied to the economic conditions we experienced during the last 10 years - would have led to 5% spending growth. They would not have.
Hell, even if you very generously interpret her statement as suggesting that the report predicts 5% spending growth over the next 10 years, that isn't true either.
The Report's Chairman has pointed out to me that the report makes no growth forecasts (see here) - so it can't be making any predictions about spend levels other than spend relative to GDP.
I think we're meant to understand that when the report [B12.18 and Fig 12-2] assumes 1.5% real GDP growth and 0.5% real spending growth, this is merely illustrative of how one could get a deficit down from 5.9% to below 3% within 10 years. I certainly hope so, because just yesterday the Scottish Fiscal Commission forecast that our GDP growth would be 0.9% in 2023 - on that basis the report "predicts" that spending growth would need to be 0.9% - 1.0% = a decline of 0.1% pa.
Still, the statement sounded good on Question Time and way more people watch that programme than will ever read this blog - so Kate can be happy, safe in the knowledge that she's done her bit to ensure the "new debate about independence" will be as fact-free as the last.
It's pretty clear that if applied historically, the Growth Commission's spending growth recommendation would have led to greater spending cuts than those we've experienced under the "Westminster austerity model" the Commission claims to "explicitly reject".
The Growth Commission suggest spending growth at 1.0% pa less than GDP growth [see their Fig 12-2 and point B12.18] and illustrate (correctly) that this would reduce a 5.9% deficit to a 2.9% deficit over 9 years.
Note that in 2009/10 our deficit was in fact 10.0%, so at that point one would argue we'd have needed a far more aggressive rule, but we'll let that pass.
If we applied the "1% less than GDP growth" rule over the last 10 years, then we would have needed to see an average annual real decline in spending of 0.2% pa - or a decline over 10 years of 2%.
What we actually saw - per GERS - was a real spending increase over those 10 years of 10.1% (an average increase of +1.0% pa).
So in Kate's terms: applying the Growth Commission's "prediction" to the last 10 years would see what was actually a 10.1% increase in spending become a 2.3% decrease. Plus 10 to minus 2.
Kate claimed "minus 8 to plus 5" - following the logic above, a fairer statement would have been "plus 10 to minus 2" - almost the complete reverse.
So what's going on here?
Two things;
1. Kate is not comparing like with like. The Scottish budget is a subset of total Scottish spending - the Growth Commission rightly focuses on total Scottish spending, so should Kate when she talks of what could have happenend and so should we. [I also suspect her -8.5% figure includes budget forecast out to 2019/20 rather than purely historic data, but I honestly can't be bothered to check]. Basically the "minus 8" is boohickey.
2. [second reveal] Kate has been good enough to tell me that she arrived at her +5.0% "based on what the GC recommends in terms of increased public spending in Scotland over a 10 year period (by 0.5% per year)"
I'm incredulous.
She's compared a non-comparable subset of our historical public spending over a period during which average onshore GDP growth was actually 0.8% pa with a projection that assumes real GDP growth of 1.5% pa!
The very simple point which Kate (a Commission member, remember) has apparently misunderstood is that the figure of 0.5% pa is most definitely not the GC's spending growth recommendation - it's an illustration of how you could get the deficit down to 3% within 10 years if real GDP growth was 1.5% pa.
But over the last 10 years real GDP Growth wasn't 1.5% pa, it was 0.8% pa - so to have got the deficit down at the rate the Growth Commission recommends, we'd have had to reduce public spending in real terms by 2% over those 10 years.
In fact - due to pooling and sharing within the UK, due to not having to focus on getting Scotland's deficit rapidly down to 3% - we were able to increase our public spending by 10% over that period.
The precise opposite of what Kate claimed is true.
Read the quote again:
"this report predicts that if we had been an independent country our spending could have increased by 5% over those 10 years"She asserts that the report says something about what could have happened over the last 10 years. It simply does not.
She implies that the report's recommendations - if applied to the economic conditions we experienced during the last 10 years - would have led to 5% spending growth. They would not have.
Hell, even if you very generously interpret her statement as suggesting that the report predicts 5% spending growth over the next 10 years, that isn't true either.
The Report's Chairman has pointed out to me that the report makes no growth forecasts (see here) - so it can't be making any predictions about spend levels other than spend relative to GDP.
I think we're meant to understand that when the report [B12.18 and Fig 12-2] assumes 1.5% real GDP growth and 0.5% real spending growth, this is merely illustrative of how one could get a deficit down from 5.9% to below 3% within 10 years. I certainly hope so, because just yesterday the Scottish Fiscal Commission forecast that our GDP growth would be 0.9% in 2023 - on that basis the report "predicts" that spending growth would need to be 0.9% - 1.0% = a decline of 0.1% pa.
Still, the statement sounded good on Question Time and way more people watch that programme than will ever read this blog - so Kate can be happy, safe in the knowledge that she's done her bit to ensure the "new debate about independence" will be as fact-free as the last.
** Addendum **
I now see that Kate was merely following the lead set for her by the Report's Chairman Andrew Wilson and indeed our own First Minister Nicola Sturgeon - I've blogged the details here
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For those who are disappointed there wasn't a graph in here, this is what Scotland's spending would have looked like if we had applied the GC's rule of spending growth being 1% behind GDP growth last time our deficit rose to the levels the GC uses as its starting point
It's pretty clear that if applied historically, the Growth Commission's spending growth recommendation would have led to greater spending cuts than those we've experienced under the "Westminster austerity model" the Commission claims to "explicitly reject".
There was an 8.4% (2017/18 prices) increase (not decrease) in the Scottish Budget between 2008/09 and 2018/19
ReplyDeletehttp://www.scotfact.com/ScottishBudgetHistorical.html
So KM, even in her own terms, should have said “Plus 8 to plus 5” and not “Minus 8 to plus 5”. In her units, that’s not a benefit of +13 from independence but a disbenefit of -3.
Thank you for answering my earlier query
ReplyDeleteI believe the Kate Forbes 8.5% figure is plucked from the draft 17/18 budget on page numbered 4 and represents a predicted real terms change 10/11 to 18/19 (from the cherry picked 10/11 baseline, not an 07/08 baseline).
The projected 1.1% budget cut in real terms 17/18 to 18/19 within the KF 8.5% figure in the draft budget did not materialise in the 18/19 actual budget.
http://www.gov.scot/Resource/0051/00511808.pdf